April 25, 2010, Somewhere between Chicago and Shanghai – I struck up a conversation with the bursar on American’s Airline’s flight; she bristled at a Glenn Beck comment I made yet she was very knowledgeable on the history of civil rights movement. In my mind I labeled her a person with political tendencies somewhere left of center, but well reasoned.
As often happens I turned the conversation to fiscal policy and the fact that Greece needs 108% of its Gross Domestic Product to cover debt payments. Imagine starting out your homes fiscal year needing 8% more than you plan on making to simply cover your mortgage payment, car payment, credit card payments, kids college tuition, and on and on. You’d be called bankrupt, for that matter so would I. It is an untenable position.
The Bursar and I talked about how delicate a democracy is, and those of you who read my posts regularly know that I wrote one about how long democracies last. This liberal woman (as I labeled her, I never asked) pointed out Sundays News Focus on the Chicago Tribune. A couple of things worth noting about the article “A tsunami of red ink” by Adam Zoll and Steve Layton is worth going to their website and reading.
The current estimated debt by the end of 2010 is 13.79 Trillion Dollars and at the rate of projected deficits the national debt will be over 20 Trillion Dollars by 2012. We the people of the United States currently need over 400 Billion Dollars of our 2800 Billion Dollars to pay debt; so before we start our fiscal year the country owes the bankers (China, Hong Kong, Taiwan, The UK, Russia, Oil Exporters) nearly 15% or our Government Revenues but wait, that’s based on the debt we’ve amassed prior to 2010, what will it be when the debt has jumped from 10 to 14 Trillion in just 2 years, and headed for 20 Trillion in the next 2 years (in effect doubling our national debt in 4 years)? Will it simply double? Or will it be far more expensive as to sell US treasury Bonds?
Debt is a Cancer, Dave Ramsey states. His call to action is simple: Live like no other now, so that you can live like no other later. In a way Isabel Sawmill of the Brookings Institute is right, we’re going to see higher interest rates, higher taxes, inflation, less leverage around the world, and reduced flexibility in times of crisis. The Cancer will begin to damage the key organs of our Democracy and our Republic’s foundation will be greatly tested in the years to come.
Can you go to your banker (China, Russia) and demand that they tighten their belts, and that China change their RMB valuation? Can you seriously think that you can have the leverage Ronald Reagan had in the 80’s to put pressure on Russia to tear down the Berlin Wall, when you owe Russia, China and the Oil Exporting nations well over a Trillion Dollars and know that you will want to ask for more money? No, the US – if it continues on this reckless course will lose significant power in the world.
At the end of the article, Zoll and Layton present a counter argument, and it is the one that truly pushed me to write this post. They quote Teresa Ghilarducci, director of economic policy analysis at the New School for Social Research in New York. She states in general that while the red ink is a terrible thing, the debt management should not be a concern because we are still far better than Japan, Germany and Britain. Well Ms Ghilarducci, I think you have the fundamentals wrong. I believe that today is the day we stop the madness of spending without control. Look at what she sites as reasons other than that we’re doing better than those three countries: She states that we should not worry right now because it was far worse during and after World War II.
OK, after WWII the US was the only productive nation left in the west. Japan, Germany, Britain, France, Italy and Russia were all but wiped out as industrial nations. It took many years and a lot of exports to create competitors and markets out in the rest of the world. Even during the Carter Administration with all it’s problems the national debt was down from over 100% of GDP in the mid 1940’s to 25% of GDP in 1980. In 35 years of work we had increased our efficiency, thanks to the Kennedy Tax cuts of the early 1960’s and again the Reagan Tax Cuts of the 80’s the GDP grew and in the 1990’s the budgets were balanced and a surplus existed. Live like no other.
Now, the debt cancer has come out of remission and the Obama administration is continuing 2 years of bad policy by the Bush Administration but doubling down and fueling an unsustainable debt increase. This cancer is now attacking the cells of the country but we don’t realize it yet. Each of us, as tax payers are the cells of this body we call the United States. If we do better for ourselves the Government gets a share and we invest again and grow again and the government revenues continue to increase. The more we spend as a nation, the less our labor goes to improve things, it simply goes to pay debt.
As Sawhill stated, in this global world when things go bad, they go bad in a hurry. She’s right. Once Cancer spreads throughout the body, it begins to win the battle and eats the host. Once debt spreads throughout the taxpayers it beings to consume the money that was once used to fuel the economy, and the battle is more and more compromised till we’re all just paying the debt and not growing the county.
Benjamin Franklin, during the days of the Constitutional Convention was asked, “what did you give us; a Monarchy or a Republic?” he answered “A Republic, if you can keep it.” We are selling our Republic just like the Greeks are demonstrating, to get votes: the giveaways are too hard to take back. Ask the Greeks.
The Lee’s Summit Conservative